How to start a new business in South Africa

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How to start a business in South Africa

Our discussion on how to start a business in South Africa as foreign investor might helpful. In terms of global perspective, South Africa is a very attractive country to do business in. The country is rich in mineral resources, the workforce is young and skilled and the country is in decent economic condition. Foreign investors have long since been investing in this country and have enjoyed great returns. So it is no surprise to see that with each passing year, new foreign investors and foreign companies are looking to get into the South African market.

In order to start a new business in South Africa one has to know the types of companies that are available in the country. There are several types of companies in South Africa and some of them have special requirements before they can be set up in South Africa.

Sole Proprietorship

The first and foremost type of company in South Africa is the sole proprietorship. It is often known as the sole trader business as well. As the name suggests, this type of company is owned and run by one single person. In this form of company, there is no difference between the owner and the company itself. This means that all the profits are enjoyed by the owner and all the risks are born by him too. It is a very risky kind of business and most of the time foreign investors avoid engaging into such activity.

Partnership

As the name suggests, a partnership business is an entity that is run together by two or more than two [not more than twenty] partners. They run the everyday business, make all sorts of decision and are considered the owners of the business. As was the case with sole proprietorship, the partners are liable for all sorts of debts and risks. But at the same time they enjoy all the profits too. The profit margins are split according to their partnership agreement and each of them have a role to play in the business. Once again, it is uncommon for foreign investors to engage into partnership business in South Africa.

Probably the most common form of business that foreign investors look into, private companies are run by a group of shareholders. In South Africa, the rules for foreign private companies are very relaxed. The requirements are quite simple as it requires only one shareholder and one director. However, according to the Companies Act, Private Companies are prohibited from selling their shares to the public. The other requirements for a private limited company are that one has to reserve a company name which cannot be the same as an already existing company. The memorandum of incorporation should be completed and the consent of auditors should be given.

Public Companies

As the name suggests, public companies are set up in a way that they public can buy shares and thus in return finance the business. This is usually done for large companies and a lot of foreign investors prefer public companies. In South Africa, the requirements for a public company are to have at least one shareholder and three different directors. All public companies in South Africa have their own identities and are considered as a separate entity from the owners.

State Owned Companies

These are companies that are always owned by a municipality or are called state owned enterprise. It is very clear that they are run by the state government and most foreign investors have no interest in them. However, in certain situations, foreign investors do look into investing with the government and government projects so for them this is the perfect set up.

Foreign and External Companies

This is one of the most commonly type of business that foreign investors look into. External companies are companies that completely foreign owned. They have been incorporated in some other country outside o South Africa. However, they have set up branches or offices in South Africa to conduct trade in the country. The CIPC do not offer any sort of securities to the South African public who are involved with such businesses. The Foreign and External Companies are mostly seen as a perfect way for foreign companies to set up a branch or representative office.

Non-Profit Organizations

A non benefit organization is consolidated open that is set up, for instance, for some type of social or social exercises or mutual/gather interests. Pay is not circulated to any partner from this kind of business structure. It is very rare to see any sort of foreign investors taking up any sort of investments in such business.